TL;DR

  1. Avoid stocks below $5
  2. Make sure the company’s EPS has grown at least 14-15% over the last few years
  3. Determine if the Return on Equity (ROE) has been more than 17%

The 3 minute read

A lot of you (our readers) asked us what the best ways to determine if a stock was a “momentum stock” are, so here’s a quick attempt at making it slightly easier for you.

While there have always been sceptics and purists who’ve always vouched for the consistency of the markets, stocks have broken traditional barriers many times in the last 15-20 years with the explosion of technology-enabled companies in getting listed. Fact is, disproportionate business growth (& fall) in a short time IS possible now and it subsequently leads to some of the those company stocks going through more crests and troughs than most stocks would.

So the markets are volatile … everyone knows that! But not all of us are equally good at spotting stocks that cause (and get impacted by) this volatility. We spoke to some such people and the most of the kind souls agreed to share their indicators and standards with us.

Best time to be a momentum trader is when a market has just fully recovered from a crash. This happens every 5-7 years now.

Consistent price rise: Most likely, by the time you spot a momentum stock you will find that its price has been on the rise for a while. It would have, almost certainly, crossed $5 if it was a low-priced stock and the rise would have been consistent for about 12 months at least.

Big investors: If you follow big traders and institutions you will notice that some of them will hold long positions in stocks that you filter by the “consistent-price-rise” criteria. Key, though, is to make sure that institutions don’t already own too much of your stocks. Their ownership being on a rise is a great thing. But too much ownership could/should signal saturation.

Trader and analyst chatter around Earnings Calls: This is probably as good a signal as any. But depending on the analysis of a solitary trader/analyst may not be the best idea. That being said, when Earnings Calls are around the corner, those who follow it consistently start discussing how the earnings may look like, what to expect etc. etc.

Stockal’s upcoming mobile app tracks more than 6,000 stocks across NYSE and NASDAQ to discover those whose trader and analyst chatter is becoming more and more positive (or negative) by the minute. It tracks price and sentiment changes to inform you – in real time – which stocks are immediately attractive to look at.

 

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Thoughts@Stockal
At Stockal, we love to watch how markets respond to unique events and how our users (investors - you and old) can make the best use of circumstances to make smart investments. In Thoughts@Stockal, we do deep and broad analysis of such impactful trends and events.

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